Budget 2017: OBR and BSA warn stamp duty cut will inflate prices

The Office for Budget Responsibility (OBR) has warned that the chancellor’s end of stamp duty for certain first-time buyers (FTBs) is likely to simply inflate property prices and mainly benefit those already owning homes.

The Building Societies Association (BSA) added its voice to the concerns surrounding the policy while academics from the London School of Economics have already suggested that targeting it at older people would be more appropriate.

In its economic outlook, the OBR explained that by putting Stamp Duty Land Tax (SDLT) savings towards deposits, first-time buyers would be able to buy properties they would not have been able to afford, but more expensively.

And it expected a distortion of house prices around the boundaries of the benefit.

Double impact

The OBR, which independently assesses the national economic performance for the government and analysis the effect of its Budget policies, suggested the effect would be double the previous stamp duty holiday as it can be continuously passed-on.

It believes the reduction in stamp duty costs will feed through “relatively quickly” and noted that “since the relief frees up FTBs’ savings to put towards higher deposits, these higher prices can be paid”.

“Thus, the main gainers from the policy are people who already own property, not the FTBs themselves,” it said.

“For some potential FTBs with smaller deposits, who are constrained by loan-to-value lending criteria, the relief will enable them to borrow a multiple of their SDLT saving, allowing them to buy properties that they otherwise could not afford – but more expensively.”

The OBR also highlighted two other behavioural effects on the public finances.

“First, the relief will distort the housing market at prices around £500,000. This will reduce receipts as FTB transactions bunch below the threshold,” it said.

“Second, it is likely that some FTB purchases will displace purchasers who would have paid more SDLT on the equivalent purchase.”

BSA questions effectiveness

In its response to the announcement, the BSA said the chancellor was on the right track but warned that the behavioural response of sellers could scupper the advantage if they simply increased the price of the property.

Building Societies Association chief economist Andrew Gall said: “Our data shows stamp duty is a much bigger barrier for home movers than first-time buyers. There was nothing specific in the Budget for them or indeed for older borrowers looking to downsize.

“Some are constrained by the lack of suitable homes. A lack of housing supply remains the single most important market issue we face.”

He added: “Many of the proposals to boost the supply of housing will take a few years to get going and some are only at the consultation stage, but the allocation of up to £44bn for housing infrastructure is a critical precursor to larger scale development.

“The commitment to explore housing guarantees with a figure of £8bn mentioned was useful and could help smaller developers. We will contribute to this early stage work as it gets going.”

Market reaction

Elsewhere, reaction to the policy was more mixed from the mortgage and housing industry.

UK Finance chief executive Stephen Jones said: “Removing stamp duty for all first-time buyers up to £300,000 will help ensure the UK has a housing market which can meet the aspirations of that important group and contribute to the health of the wider economy.”

Spicerhaart Corporate Sales managing director Mark Pilling was similarly positive about the move saying: “The chancellor’s decision to scrap stamp duty completely for first time buyers on properties up to £300,000 is great news; it will increase activity all the way up the chain and create a much more buoyant housing market.”

However, this was questioned by Mortgage Advice Bureau head of lending Brian Murphy.

He said: “In an Autumn windfall, first-time buyers just benefitted from a very welcome boost to their deposit savings, courtesy of chancellor Hammond.

“While this is great news for those taking their first steps on the ladder, and doubtless will inject a bit of impetus into a plateauing market, in the short term this could actually have the effect of creating a demand for properties that fall within the exempted values which may further stymie buyers at entry level.

He added that “although today’s move may enable first-time buyers to purchase a home more quickly, they still need the stock available to buy in the first place.”

Owain Thomas is Features and Contributing Editor at Mortgage Solutions. He has previously covered the protection and mortgage industry, more recently he edited Workplace Savings and Benefits, and HRD Connect.
Owain won the Financial Healthcare Journalist of the Year (B2B) at the Headline Money Awards in 2014 and 2016. He also won the Protection Review's Journalist of the Year award in 2012.

You may also be interested in

Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.

Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.

NEWSLETTER SIGN UP

For just two more minutes of your time, you can register for premium access

Specialist lending newsletters

Access to exclusive content

Priority event notifications

Business information tailored specifically to your business needs

Engage in interactive commenting and voting in our weekly polls

Specialist Lending Newsletter

You may also be interested in the Specialist Lending Solutions newsletter. All the latest news, analysis and insight from the mainstream residential lending market. Including industry news, adviser business strategy tips and market commentary.

Email address

First name

Surname

Postcode

LOGIN

please sign-in using your email and password

Success....

Please enter your email address and we will email you a link where you can change your password.

Premium access

Register to gain access to MortgageSolutions.co.uk for the latest news analysis, interactive comment, industry video and features, all at your finger tips. Vote in our polls, get your opinion across on the news and watch out for our weekly editorial round-up features.

Delegate places are free of charge, subject to approval by the organisers based on job criteria

Registered delegates have access to the seminars where applicable. You will be given an identification badge, which must be shown upon request.

Once you have registered and your application has been accepted, then you are expected to attend. If you are subsequently unable to attend, please make sure your notice of cancellation is sent at least three weeks prior to the date of the event.

All cancellations must be received in writing. You will receive confirmation of your cancellation. Suitably qualified replacements may be sent if you are unable to attend; however, the organisers must approve them before the event takes place.

Should you be unable to attend, a substitute delegate is always welcome, subject to confirmation by the organisers and on receipt of the change in writing.

AE3 Media reserves the right to change the programme, speakers, dates or venue at any time, without notice. Should for any reason the venue or speakers change, or the event be cancelled due to an act of terrorism, extreme weather, disease control, industrial action, act of God or any eventuality beyond the control of AE3 Media, we shall endeavour to reschedule; but the client hereby indemnifies AE3 Media and holds AE3 Media harmless from and against any and all costs, damages and expenses, including legal fees, incurred by the client.

AE3 Media will not be liable for damage, loss, injury, accident, annoyance, delay or irregularity, which occurs by reason of any act or default committed by any person or company.

UK law shall apply to any claim against AE3 Media and all proceedings shall be within the exclusive domain of the UK Courts.

The signature of the delegate/visitor or his/her duly authorised agent on the registration form shall signify the delegate/visitor's acceptance of the above conditions and the same shall bind both parties to this contract.